Morgan Stanley lowers India’s growth forecast on inflation, global recession

Morgan Stanley has downgraded India’s economic growth forecast for the next two fiscal years, saying global recession, rising oil prices and weak domestic demand will affect Asia’s third-largest economy.

Gross domestic product growth will be 7.6% for FY 2023 and 6.7% for FY 2024, down 30 basis points from previous estimates, the brokerage said in a note on Tuesday.

The cut reflects a clear economic impact from the Russia-Ukraine conflict, which has driven up crude prices, pushing retail inflation in India, the world’s third-largest oil importer, to a 17-month high.

Upasana Chachra, Morgan Stanley’s chief economist for India, said: “The main channels of influence are likely to be high inflation, weak consumer demand, tight financial conditions, adverse impact on business sentiment and delay in recovery of CapX.”

He added that both inflation and the country’s current account deficit could probably be exacerbated by broad-based price pressures and record-high commodity prices.
In a move to curb uncontrolled inflation, the central bank raised its core lending rate to a record low at an off-cycle meeting in early May. Markets are seeing the Reserve Bank of India raise its key rates further in the coming months as inflation remains high.

The country is also importing oil at a discounted rate from sanctions-ridden Russia to ease the pressure on rising crude prices, which recently reached 139 139 a barrel.

India meets about 80% of its oil demand through imports and rising crude prices increase the country’s trade and current account deficit, as well as hit the rupee and boost imported imports.